July 4, 2013

CLIMB ON BOARD, WE'LL CARRY EU:

The more America and the EU grow together, the more the EU will benefit from the US recovery.

Demand for European goods will increase, and the EU's member states can - and should - align their economies with US growth. History suggests that the hope for a self-sustained recovery in Europe might well prove deceptive; almost always, the European economic cycle has followed and reinforced that of the US. Today, for example, a prolonged recession in Europe is, alongside budget cuts, generally seen as posing the greatest risk to a sustained US recovery.

Labor costs in the US industrial sector are currently 25% lower than the European average. Even more significant, however, are the differences in energy costs, which are now up to 50% lower in the US - a gap that is likely to widen further as America's shale-gas revolution continues.

This has led energy-intensive European industries - including producers of glass, steel, chemicals, and pharmaceuticals - to invest heavily in the US. Often, they manufacture high-quality upstream products, which are then processed further in Europe. The Austrian steel producer Voestalpine AG, for example, will start producing steel pellets in the southern US that will then be upgraded to high-quality alloys in Austria.

The combination of lower production costs in the US and Europe's world-class finishing capabilities is a recipe for first-rate products at competitive prices. In this way, European investment is contributing to the re-industrialization of the US while simultaneously ensuring high-quality European jobs.

But Europe must do more to reinvigorate its own manufacturing sector. The last attempt to create an EU-US free-trade zone, under President Bill Clinton, failed because of the EU's rigid, antiquated agricultural policy. A new effort would help Europe to replace its agricultural policy with a research-and-development policy aimed at boosting industrial competitiveness.

Despite all the lip service paid at multilateral summits to policy coordination, imbalances within the global economy are fueling a rise in tensions. At a time when many are seeking salvation in nationalism, an EU-US free-trade zone would be a powerful symbol of cooperation in overcoming global challenges.

While we originally held out little hope that the UR would accomplish anything in office, he's on the verge of duplicating Bill Clinton's successes: an entitlement mandate (welfare/health insurance); a Peace Dividend; and expansion of free trade.
Posted by Orrin Judd at July 4, 2013 8:34 AM
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